China tells US to stop being a school bully as new tariffs kicked in

    New 15% tariffs on more than USD 125B in Chinese imports took effect over the weekend, while the levies on the rest of USD 300B are still on track for December 15. China also started retaliation on the USD 75B in American goods. At the same time, US President Donald Trump indicated on Sunday that talks are still planned for September. He noted, “we are talking to China, the meetings in September, that hasn’t changed.”

    On the other hand, Chinese state media repeated its hard line messages. The official Xinhua news agency warned “the United States should learn how to behave like a responsible global power and stop acting as a ‘school bully’.” The People’s Daily also emphasized “China’s booming economy has made China a fertile ground for investment that foreign companies cannot ignore.”

    IMF Lagarde: Fix economic imbalances with fiscal means, not trade obstacles

      IMF Managing Director Christine Lagarde on trade war:-

      • She urged politicans to “resolve trade disagreements without resort to exceptional measures”.
      • “Trade wars not only hurt global growth, but they are also unwinnable”.
      • “We know that the self-inflicted harm of import tariffs can be substantial even when trade partners do not retaliate with tariffs of their own,”
      • “We also know that protectionism is pernicious, because it puts the biggest strain on the poorest consumers who buy relatively more low-priced imports. In other words, harming trade is bad for the economy and bad for people.”
      • “The way to address global economic imbalances is not to raise new obstacles to trade. Using fiscal means to address global imbalances is critical. This includes, for example, lowering deficits in the US to bring public debt towards a sustainable path, and stronger infrastructure investment and education spending in Germany,”
      • “And importantly, those who are adversely affected by globalization and technological progress should receive more support to ensure that they can invest in their skills and transition to higher-quality jobs.”

      The IMF’s Global Prospects and Policy Challenges report:-

      • “The global expansion is gaining strength from the pick-up in international trade, and it should not be put at risk by the adoption of inward-looking policies,”
      • “The modernization of the rules-based multilateral trade system should continue, anchored in the World Trade Organization, with well-enforced rules that promote competition and a level playing field. Co-operation is also needed to tackle excess global imbalances.”
      • “The re-emergence of unilateral trade restrictions may escalate tensions and fuel global protectionism, disrupting worldwide supply chains and affecting long-term productivity.”

      Canadian CPI cools to 2.8% yoy in Feb, below expectations

        Canada’s CPI decelerated in February, registering an increase of 2.8% yoy, which fell short of anticipated 3.1% yoy. This slowdown from January’s 2.9% yoy offers a glimmer of relief as inflationary pressures show signs of easing. When gasoline prices are excluded, CPI was down from 3.2% yoy to 2.9% yoy. Gasoline prices themselves saw a modest uptick of 0.8% yoy, a notable recovery from -4.0% yoy decrease observed in the previous month.

        The more specific measures of inflation, which provide a clearer view of underlying trends, also reflected a cooling trend. CPI median, a measure that provides a middle ground by excluding extreme fluctuations, slowed from 3.3% yoy to 3.1% yoy, coming in below the expected 3.3%. Similarly, CPI trimmed, which removes the most volatile components, decreased from 3.4% yoy to 3.2% yoy. Lastly, CPI common, often regarded as a core measure that tracks common price changes across categories, decelerated from 3.4% yoy to 3.1% yoy, again missing the forecast of 3.4%.

        Full Canada CPI release here.

        German Ifo falls to 88.6, struggling to overcome stagnation

          German Ifo Business Climate fell from 89.3 to 88.6 in June, below expectation of 89.7. Current Assessment index was unchanged at 88.3, below expectation of 88.4. Expectations Index fell from 90.3 to 89.0, below expectation of 91.0.

          Ifo said that the German economy is “having difficulty overcoming stagnation”.

          By sector, manufacturing fell from -6.5 to -9.2. Services rose from 1.8 to 4.2. Trade fell from -17. to -23.5. Construction ticked up from -25.6 to -25.0.

          Full German Ifo release here.

          USTR Lighthizer blames Canada for not making essential concessions

            US Trade Representative Robert Lighthizer complained that “Canada is not making concessions in areas where we think they’re essential”. And, there was “some distance” between the two sides on NAFTA negotiations. Lighthizer added that “We’re going to go ahead with Mexico … If Canada comes along now, that would be the best. If Canada comes along later, then that’s what will happen.”

            Lighthizer also noted “we’re sort of running out of time,” referring to the US-imposed deadline of October 1.

            Canadian Foreign Minister Chrystia Freeland’s spokesman Adam Austen reiterated that “Our focus is the substance, not timelines. We will continue to negotiate with a view to getting a deal that is in Canada’s national interest.”

            RBNZ holds rates, hints at longer duration of restrictive policy

              RBNZ has opted to keep the Official Cash Rate stable at 5.50%, aligning with broad market anticipations. The minutes of the meeting revealed a consensus among committee members that restrictive interest rate environment might be needed “for a more sustained period of time”.

              In the short term, RBNZ is looking at a scenario where domestic demand could exhibit “greater resilience”, spurred by migration. This situation could “slow the pace of expected disinflation”. A related concern is wage inflation, which could take a longer time to ease than initially expected. Recent rise in oil prices could also risk “headline inflation being higher than expected”.

              Looking at the medium term, the minuted noted concerns about greater slowdown in global growth. Such a downturn could lead to further reductions in non-oil import prices. Moreover, weakened global demand, with a particular emphasis on China, could exert additional pressure on commodity prices, subsequently affecting New Zealand’s export revenues.

              Full RBNZ statement here.

              German economy grew 1.5% in 2018, slowest since 2013

                The German Federal Statistical Office said the German economy grew 1.5% in 2018 as a whole. And that was above the 1.2% average growth rate of the last 10 years. It’s the ninth year of growth in a row. But Destatis noted that “growth has lost momentum”. German economy grew 2.2% in both 2017 and 2016, and 1.7% in 2015. And the pace was slowest since 2013.

                Positive contributions came mainly from domestic demand. Household final consumption expenditure rose 1.0%. Government final consumption expenditure rose 1.1%. But both were notably slower than growth rate back in the past three years. Exports grew 2.7% while imports grew 3.4%. Full release here.

                The Economy Ministry said the slowdown was due to weaker global economy, car industry’s sales problem, outbreak of flu and strikes. It’s optimistic that the economy will likely expand at the start of 2019. However, Euro drops notably today on worries that Germany was in a technical recession with contraction in last Q3 and Q4

                US initial jobless claims dropped to 256k

                  US initial jobless claims dropped -5k to 256k in the week ending July 23, versus expectation of 248k. Four-week moving average of initial claims rose 6.25k to 249.25k.

                  Continuing claims dropped -25k to 1359k in the week ending July 16. Four-week moving average of continuing claims rose 8.75k to 1362m.

                  Full release here.

                  UK PMI manufacturing finalized at 49.1, sector faces multiple challenges

                    UK PMI Manufacturing was finalized at 49.1 in April, down from March’s 50.3. This decline was also reflected in four key areas: output, new orders, employment, and stocks of purchases. Furthermore, input price inflation hit a 14-month high, exacerbating cost pressures for manufacturers.

                    Rob Dobson, Director at S&P Global Market Intelligence, highlighted the renewed downturn, attributing the challenges to weak market confidence, client destocking, and disruptions caused by the ongoing Red Sea crisis. These factors have notably hindered the sector’s ability to secure new work from key international markets including Europe, the US, and Asia.

                    The manufacturing downturn is prompting firms to exercise “cost caution,” leading to reduced employment levels, lower stock holdings, and cutbacks in purchasing activity. Dobson expressed concern over the implications for consumer price inflation, noting that the ongoing cost pressures within the manufacturing sector are complicating efforts to return inflation to target levels.

                    Full UK PMI manufacturing final release here.

                    Germany Gfk consumer sentiment rose to -33.9, positive trend consolidating

                      Germany Gfk consumer sentiment for February rose 3.7 pts to -33.9, below expectation of -33.0. In January, Economic expectations improved from -10.3 to -0.6. Income expectations rose from -43.4 to -32.2. Propensity to buy dropped from -16.3 to -18.7.

                      “With the fourth increase in a row, the positive trend in consumer sentiment is consolidating. Even though the level is still very low, pessimism has eased recently”, explains GfK consumer expert Rolf Bürkl.

                      “Falling energy prices, such as for gasoline and heating oil, have ensured that consumer sentiment is less gloomy. Nevertheless, 2023 will remain difficult for the domestic economy. Private consumption will not be able to positively contribute to overall economic development this year. This is also signaled by the still very low level of the indicator.”

                      Full release here.

                      EU to step up no-deal Brexit preparation as negotiation progress still not sufficient

                        Reuters reported that EU leaders believe that progress in Brexit negotiation with the UK is “still not sufficient” for an agreement. The decision wold be confirmed at the EU summit on Thursday and Friday. Also, the leaders would ask chief negotiator Michel Barnier to intensify the talks and implement an agreement from January 1, 2021. At the same time, EU would step up no-deal preparations.

                        Separately, Commissioner for the EU’s single market, Thierry Breton, told BFM business radio “We prefer a deal but not at any price and if there is no deal, we are ready… our customs are ready for a no-deal and it is urgent that British customs also prepare for it.”

                        New Zealand unemployment rate dropped to 4.0%

                          New Zealand employment rose 1.0% in Q2, above expectation of 0.7%. It’s also the lowest since Q4 2019. Employment rate rose 0.5% to 67.6%. Unemployment rate dropped from 4.6% to 4.0%, much better than expectation of 4.5%. Labor force participation rate rose 0.1% to 70.5%. Labor cost index rose 0.9% qoq, above expectation of 0.7% qoq.

                          “The fall in unemployment is largely in line with other labour market indicators, including declining numbers of benefit recipients and increased job vacancies, and recent media reports of labour shortages and skills mismatches,” work, wealth, and wellbeing statistics senior manager Sean Broughton said.

                          Full release here.

                          UK PMI manufacturing finalized at 47 in Jan, some shoots of positivity developing

                            UK PMI Manufacturing was finalized at 47.0 in January, up from December’s 31-month low of 45.3. S&P Global noted that output and new orders fell across all three product categories. Input price inflation eased to 27-month low.

                            Rob Dobson, Director at S&P Global Market Intelligence, said:“There were some shoots of positivity developing, however. Rates of contraction are generally lower than before the turn of the year, a possible sign that we may be past the worst of the downturn in industry.

                            “Cost inflation also eased further, while supply chain delays were the least pronounced for three years. Manufacturers’ confidence is also reviving from recent lows, hitting a nine-month high, though the mood continued to be darkened by concerns about inflation and the possibility of recession.”

                            Full release here.

                            Australia AiG construction rose to 57.6, healthy leap in activity

                              Australia AiG Performance of Construction rose 4.3 pts to 57.6 in October. Looking at some details, activity rose 15.4 to 65.2. Employment dropped -0.2 to 56.8. New orders dropped -0.2 to 58.7. Supplier deliveries dropped -1.3 to 41.3. Input prices dropped -1.2 to 97.2. Selling prices dropped -0.5 to 78.3. Average wages dropped -1.5 to 75.1.

                              Ai Group Head of Policy, Peter Burn, said: “The healthy leap in activity levels across the Australian construction sector in October is a taste of what is expected to be a strong rebound for the broader economy over the next few months as New South Wales, Victoria and the ACT, liberated from COVID restrictions, catch up with the rest of the country and as barriers to the movement of people within Australia are removed.”

                              Full release here.

                              RBNZ Spencer hailed macroprudential policy

                                RBNZ Governor Grant Spencer hailed the success of macroprudential tools in a speech to finance industry professional today. The policy infrastructure including the LVRs (loan to value restrictions). helped limit the risks of surge hour prices. It also helped keep interest low to boost inflation. And, after adopting the policy for five years, Spencer suggested a review would be run with the Treasury to consider ways to expand it. He also suggested to introduce a new committee on macroprudential policy alongside the monetary policy committee.

                                Risk aversion intensifies, European indices made new 2018 low, DOW breaches Nov low

                                  Risk aversion continues to intensify. AUD, NZD and CAD remain the weakest one is general. USD is catching up in US session. However, EURUSD and GBP/USD are staying in familiar range. USD/CHF breached 0.9908 support but quickly recovered. USD/JPY also breached 112.30 support but quickly recovered too. More is needed to prove Dollar’s weakness.

                                  In Europe:

                                  • DAX closed down -3.61% or -404.79 pts at 10795.45. Below key support level, 2018 low (made in Nov) at 11009.25.
                                  • CAC closed down -3.58%, or -117.04 pts at 4767.33. Below key support level, 2018 low (made in Nov) at 4894.30.
                                  • FTSE closed down -3.53% or -244.15 pts at 6677.68. Below key support level, 2018 low (made in Oct) at 6851.59.
                                  • German 10 year yield dropped -0.0436 to 0.234, lowest since one-day spike low at 0.186 on May 29.

                                  In US:

                                  • DOW is down -2.48% or -622pts at 24404.
                                  • S&P 500 is down -2.68%
                                  • NASDAQ is down -2.19%
                                  • 10 year yield is down -0.082 at 2.842

                                  DOW breached Nov low of 24268.74 to as low as 24242.22. Oversold condition might bring brief recovery. But further decline should be seen to 24122.23 support in near term.

                                  10 year yield has broken 55 week EMA and is now in proximity to 2.808 key support level. For now, strong support is still preferred around this level. But considering bearish divergence condition in weekly MACD, break of 2.808 would be a strong sign of medium term reversal. And deeper fall would be seen back to 2.034/2.621 support zone.

                                  Japan: Industrial production appears to be pausing for picking up

                                    In June economic report, Japan’s government said “industrial production appears to be pausing for picking up.” That’s a downgraded assessment from May’s “industrial production shows movements of picking up.” Exports continued to be “almost flat”.

                                    It reiterated that “full attention should be given to the downside risks due to rising raw material prices, supply-side constraints and fluctuations in the financial and capital markets while there are concerns regarding the effects of lengthening the state of affairs of Ukraine and suppression of economic activities in China.”

                                    Nevertheless, for the short-term, the economy is “expected to show movements of picking up, supported by the effects of the policies while all possible measures are being taken against infectious diseases, and economic and social activities proceed to normalization”.

                                    Full release here.

                                    BoJ opinions: Swift decisive actions needed should downside risks materialize

                                      BoJ released summary of opinions of January 22/23 monetary policy meeting today. It’s noted there that “hard data suggest that the trend in Japan’s economy has been firm”. However, “some market participants hold excessively pessimistic views.” And, risks to overseas economies have been “increasingly tilted to the downside” and there are concerns that some “may materialize”.

                                      BoJ also noted that recent fall in stocks prices “to a certain extent indicates the anticipation of a global decline in the real economic growth rate.” And, “this is clear from developments in exports and imports, rather than GDP, which is declining marginally.”

                                      The central bank also reiterated the stance to maintain current monetary easing. And more importantly, if downside risks materialize, BoJ “should be prepared to make policy responses”. It’s added that “Since achieving the price stability target has been delayed, it is not desirable to adopt a stance of not taking actions until a serious crisis occurs. Rather, a stance of taking swift, flexible, and decisive actions, including additional easing, in response to changes in the situation is desirable.”

                                      Full summary here.

                                      RBA awaits more data to resolve tensions in domestic data

                                        In the March meeting minutes, RBA noted the “tension” between ongoing improvement in job data and slowdown in output growth in H2 2018. Leading indicators pointed to further tightening in the job market and wages growth picked up in Q4. Growth slowed but business and public spending remained positive. However, there continued to be “considerable uncertainty” around consumption outlook, given fall in house prices.

                                        Taken into account the available information, RBA judged that current monetary policy stance was “supporting jobs growth and a gradual lift in inflation”. But “significant uncertainties around the forecasts remained”. The scenarios of a rate hike and rate hike were “more evenly balanced” than over the preceding year. And, “it would be appropriate to hold the cash rate steady while new information became available that could help resolve the current tensions in the domestic economic data.”

                                        Full minutes here.

                                        Japan PMI manufacturing revised down to 53.0

                                          Japan PMI manufacturing was finalized at 53.0 in June, revised down from 53.1.

                                          Quote from Joe Hayes, Economist at IHS Markit:

                                          “Japan manufacturing PMI data continue to signal that the sector’s current expansion phase still has legs. Output growth edged up in June, supported by further inflows of new work and an accelerated rate of employment growth.

                                          “Concerns do remain however, as new order growth eased to a ten-month low and export sales decreased for the first time since August 2016. Moreover, with input price inflation jumping to a three-and-a-half year high, manufacturers may be forced to absorb higher cost burdens in order to remain competitive, particularly if the yen faces further safe haven demand.”

                                          Full release here.